Supply Chain Blog

I had a terrible row last weekend. Everything seemed to be going well; no stress, nothing to worry about just getting along nicely then boom! There was screaming, pain and I have to admit I was close to shedding tears as the incident unfolded. Within seconds I had gone from warm contentment to hurt and concern.

I had clearly overstretched myself on the rowing machine and my right hip had taken a beating. I was not sure if it was a muscle problem or a jolted joint or possibly both but I was very sure it hurt. Limping immediately and obviously like a poor amateur dramatics actor doing Long John Silver, I turned off the DVD of Botham’s Ashes and hobbled away.

Walking around was difficult as the discomfort was constant and punctuated by unpredictable sharp daggers of excruciating pain for no obvious reason. A good overnight rest should do the trick, or so I thought. The next morning I carefully maneuvered my feet onto the floor and stood only to experience a searing pain in my left foot. Where did that come from? Was I finally falling apart? Has the time come to sell the gym equipment?

I was now walking extremely strangely trying to optimise/minimise the right hip and left foot pain. Expecting some sort of improvement 2 days later, my right knee joined in on the act and started to ache too. An unholy trinity of pain now had me barely walking. My wife reckoned I looked like one of those Olympic walkers but in very, very, very slow motion – so kind!

What was strange was that I could run up the stairs without any twinge of discomfort. How crazy is that? I could run out of the house in an emergency but I could not walk out.

Not surprisingly, my right hip problem had forced me to modify the way my left foot moved me along and in turn, a combination of right hip-left foot adjustment put extra strain on my right knee.

Does my aching torso sound a little bit like your FMCG or Pharmaceutical business? For example, think about what happens when a tactical key account promotion is proposed which was not in any forward looking activity plan. The Supply Chain has to bend over backwards to make stock available for multinational retailers which consequently starves the traditional trade of stock.

Seeing a rise in demand the planners raise orders for replenishment stocks but by the time these arrive the sales team has decided the tactical promotion was not quite right and another sku is required for the promotion. Of course, you are now overstocked in one key sku and out of stock in another and have unhappy clients in both channels.

The supplying factory also detects a rise in demand so activates RM/PM orders in anticipation of execution of the forecasted sales which do not materialise.

If you operate your company outside of a rigorous S&OP process you will cause the business to lurch from one problem to another as different departments work in isolation and try and adjust and compensate for unexpected, unplanned challenges. A real S&OP process – not just on paper to satisfy the auditors – allows all the different departments to take decisions and similarly take risks, with total clarity and consensus on the potential outcomes.

I am fully recovered now but your business may need a little more time to get back into decent shape and S&OP could well be the medication you need.

There is your dilemna. You need to save cash towards an expensive year-end holiday but you really do not know the best place from where to take the money. Do you take it from your day to day current account which is already set up to pay the routine monthly bills and invoices? Or, do you take funds out of an investment account that has not yet actually matured?

In effect, the money in the current account is already committed and the expected appreciation in the investment account is still to be delivered which puts me on my soap box and to today’s topic.

When times are tough in FMCG and Pharmaceutical companies and cost savings are required why do the senior bodies always look to Supply Chain in the first instance? Unlike those colleagues with a fondness for agency lunches there is very little discretionary spend to be found in the vast majority of Supply Chain operations. Ok, there may be some team building budget, business travel and a small entertainment allowance but where else can you save money?

There is not a lot you can do to have an impact in the short term. What could you do?

Negotiate better RM/PM prices? Yes, but this will not filter through very quickly.

Increase efficcncy in your factories? Yes, but again not likely to hit the balance sheet any time soon.

Reduce head count along the Supply Chain? Certainly effective but think about notice periods and compensation obligations and not least the effect on efficiency and reliability.

You will have contracts in place for most services with 3 or 4PLPs for warehousing but as long as pallet space utlisation, storage efficiency and shrinkage etc is under control there really are few opportunities and certainly no “low hanging fruit”.

People often rant on about how sales and marketing people are the real stars of any FMCG or Pharma show and without them nothing happens. Think about it, if you do not have any product available to sell it does not matter if you have the best sales pitch or the most memorable TV advert, does it? In simple terms the SC gets the stuff there and S&M might, repeat might sell it!

Supply Chain people and processes get the product into Traditional Trade and Key Account outlets and how they do it is relatively inflexible in terms of discretionary spend along the way. So when you are looking for savings why do you assume they must come from Supply Chain and not from the huge sales and marketing budgets? The promised client discounts have not yet delivered and the proposed new TV advertisement is a long way from having an in-market impact.

Certainly, you have to keep control of costs and a rolling annual target is a sensible plan for any business but 2-3% Supply Chain reduction every year is commonly small beer compared with multi-million S&M expenses. Diverting your valuable Supply Chain resources to scrimp and save these small percentages simply takes people off the day to day priority of getting your stock onto shelves.

What made me think of that? Do you remember that playground game called Statues? One person is the “museum” Curator and stands at the end of a field or yard. Everyone else stands an agreed distance away from the Curator.The aim of the game is for a "Statue" to touch or tag the Curator.

The Curator turns away from the Statues and then they run and try to tag the Curator. However, whenever the Curator turns around, the Statues must freeze for as long as the Curator looks their way. If a Statue is caught wobbling or moving, they are sent back to the starting line to begin again.

The same is happening in FMCG board rooms across the globe.

I am a frequent visitor to FMCG retails outlets for both business and the “pleasure” of seeing domestic senior management investing our money. When in different countries I always take a look at the local retailers to see what is different or innovative. One thing struck me on recent visits to three different countries. My word there are a lot of skus on the shelves, on racks, on gondolas, on the floor and even hanging from the ceiling. Do you really need all of them?

CEO’s speak about “necessary complexity” and “selective assortment” but as far as I can see skus are being added to portfolios willy-nilly, with major emphasis on the willy. Every time you add an sku you are incurring extra cost and less efficiency in the Supply Chain but these are rarely used as the basis for a new introduction. Do all your skus actually pay their own way or are they actually destroying value?

Analysis at a brand level is for sales and marketing to either brag or invent excuses about in-market performance. You really do need to ensure every single sku is adding something to the corporate pot over and above what it costs to have the sku on the portfolio. Once you have established the status quo you then need only to focus on those with turnover and profit/margin at the lower end of whatever scale you define.

When an sku is clearly not paying its way then notice should be served and if improvement is not forthcoming, delist. Get rid of the dead wood and spend scarce resources behind what is actually successful. I am not suggesting a ruthless sku rationalisation process in the style of King Henry VIII (strictly 1 in: 1 out) but a routine process with board level involvement will pay dividends.

Whatever process you put in place there are team members who simply worship skus. They like variants and different colours and numerous pack sizes and X number of facings like the competition, whether they make money or not. Oh, and don’t forget promotions and special editions as this is where the Statues mentioned earlier come in.

When the CEO is not looking, skus that were meant to be temporary or tactical become permanent skus. The CEO looks around and asks if sku numbers are under control and he gets nods from sales and marketing but turns away again before the Supply Chain and Finance guys can get a word in. As the Curator of your business you need to be firm but fair with what is on your portfolio. If some people don’t like that then perhaps divorce is the only answer – beheading is best avoided.

As a general rule house or office numbering usually starts with number 1 at the start of the road nearest the city or town centre. Odd numbers on the left and even numbers on the right increase sequentially until the end of the road. In many countries long roads and highways are identified by the number of km or miles from the city centres. A simple logic of everyday life, you might think.

Not here in Romania. The road I live in gets off to an appalling start with houses 43A and 2 opposite each other at the far end of the road in the direction of City Hall. After a short distance of regularity it all starts to fall apart, horribly. The odd numbers jump from 7 to 15. House number 9 appears much farther down the road opposite number 32 and next to number 19. Houses 27 and 29 are nowhere near 28 and 30 and to cap it all, a new house is being built between 24 and 28 and what number does that have? Fancy a gamble on 26? No, not even an even number, it is 37 of course.

This road must have the highest incidence of free of charge dial a pizza transactions than anywhere else in Romania. You see the various pizza motorbikes criss-crossing the road trying to find hungry customers. Our Indian dial-n-deliver never arrives hot so we rarely have to pay for the treat and a quick microwave does the trick. The buzzing motorbikes of rapidly cooling food compete for road space with trucks from furniture and DIY stores and huge courier delivery vans. God forbid if anyone ever needs an ambulance or a fire engine - at least the fire engine could follow the flames and smoke, I suppose.

Think of all those incidents of repeatedly poor customer service, excess cost to serve and lost sales. Not forgetting the negative impact of paying for a pizza and delivering the same but not receiving cash in exchange.

Does that sound like your Route To Market distribution performance in Traditional Trade (TT)? I saw the very same last month in a big name FMCG drinks company:

No route planning of producer deliveries from DC to distributors.

No route planning of distributor deliveries to outlets.

No route planning of distributor sales calls.

No route planning of distributor cash collection calls.

Exactly the same chaos and inefficiency as my road on a busy day. No wonder the company is struggling to maintain share and this is share which is extremely difficult to claw back once lost.

Sorting out a sensible route plan is not rocket science. With a decent map you can do it on a piece of paper or you can use one of the customised IT packages that make decisions using post codes. Even the IT package will not be perfect and inevitably you will see some wasted trips as clients change orders or delivery days or when new clients are secured. When you are in this situation, doing nothing really is not an option.

If you read this and think your set up is “one of the best” then perhaps the “best” you are comparing yourself with is not actually very good at all. Solving this does not require huge funds or resources and it is a growth opportunity directly under your own control. So, why not do something about it?

Alternatively, you could also employ Dora our post lady. Doamna Dora is the only person who understands the numbering logic in my road. Indeed, when she was on holiday recently a man took her place and he is still missing.